Will Netflix become a trillion-dollar stock by 2035?

netflix (NFL 0.57%) By bringing streaming video to the masses, it turned the entertainment industry on its head. The massive success has made this business a big winner for investors. Over the past 20 years, the stock has soared 15,720%.

this streaming stocks It is currently one of the most valuable companies in the world, with a market capitalization of $244 billion. However, there is still potential to continue rewarding shareholders over the long term. So, can Netflix become a $1 trillion company by 2035?

What’s next on Netflix

The company’s rise has been astonishing. By creating a better user experience focused on convenience and broad content selection, Netflix has achieved incredible growth. Sales in 2023 will be $33.7 billion, up 666% from 10 years ago. Its current subscriber base of 270 million has grown astronomically over the years.

But today’s Netflix is ​​a completely different animal than the Netflix of the past. The company’s services are reaching a more mature stage in its key markets, especially the United States. The leadership team just announced that it will stop reporting quarterly subscriber numbers starting next year, instead prioritizing revenue growth and engagement.

But investors need not worry. The company added 9.3 million net new subscribers in the first quarter and revenue increased 14.8%. Netflix is ​​seeing tremendous success in new areas it hasn’t previously focused on. The advertising tier reported a 65% increase in memberships quarter over quarter, indicating real interest from those looking for cheaper options. Netflix has also launched a campaign to crack down on password sharing, requiring users to sign up for their own accounts.

In addition to these two successful moves, the company is also venturing into new content opportunities. What is noteworthy is the recently concluded contract. TKO Group to Bring raw to netflix From next year. There are also reports that Netflix may bid for the rights to stream NBA games. Participating in live sports is something executives said would never happen. Let’s see if this actually comes to fruition.

Despite its tremendous growth over the past decade, Netflix still sees significant expansion opportunities. Executives estimate that there are about 500 million smart TV households worldwide (this figure does not include China, where Netflix is ​​not available). This will give the company enough room to slowly grow its user base and revenue potential.

From a financial standpoint, Netflix has never been more profitable. Critics have always pointed out how much money the company is spending on content, believing that Netflix will never start producing cash. That was a wrong view.

Management expects to generate free cash flow of $6.9 billion in 2023, followed by $6 billion this year. This is the money left over from Netflix’s investment in content. Netflix is ​​now Buy back shares This is a policy of returning excess cash to shareholders.

expected to slow down

As of this writing, Netflix has a market capitalization of $244 billion. A roughly quadrupling in the company’s value over the next 11 years would mean an annual increase of about 13%. That’s not a very optimistic result.

Over the past 10 years, Netflix’s market capitalization has soared more than 1,100%. It is safe to assume that this growth rate will slow sharply in the future.

Nonetheless, I think joining the exclusive $1 trillion club is within the realm of possibility. Netflix sale for price The ratio is 7.2, consistent with the average over the past 10 years. If this multiple stays the same, as anyone would guess, the company would need to grow earnings by about 13% per year between now and 2035. If possible, the company’s market capitalization could reach $1 trillion.

It’s not impossible to believe that something like that could happen.